Oil Search Sees Exxon LNG Project Shipments Starting Shortly

Oil Search Ltd. (OSH), Exxon Mobil Corp. (XOM)’s partner in a $19 billion liquefied natural gas export project in Papua New Guinea, expects shipments to Asia to start shortly with the initial cargoes sold on the spot market.

The process to load the first LNG tanker has begun, with a decision on when the ship will leave to be made over the next few days, Managing Director Peter Botten said today by phone from Port Moresby, the Pacific nation’s capital. The first gas is expected to go to Tokyo Electric Power Co., he said.

“The project is a platform for a significant corporate transformation for Oil Search,” he said. On the timing for the first ship to leave PNG, “we’re being cautious about the date but at the end of the day it will take place shortly,” he said.

The gas project in Papua New Guinea will allow Oil Search to fund expansion opportunities and pay higher dividends, the Port Moresby-based company has said. Seven other LNG ventures are going ahead in neighboring Australia to meet Asian demand.

Exxon, whose Australian project started producing LNG last month and ahead of schedule, expects the Papua New Guinea development to spur more foreign investment in the country, Peter Graham, Exxon Mobil PNG Ltd.’s managing director, said today in an e-mailed copy of a speech he gave in the Pacific nation. The departure of the first LNG vessel, the Spirit of Hela, is just days away, he said.

The first series of LNG cargoes from the project will be sold at spot prices, with the development progressively moving into contract deliveries, Oil Search’s Botten said.

Spot Pricing

“Spot pricing at the moment is pretty healthy,” he said. “That could change over the coming months, but we are seeing good pricing achievable at spot.”

Northeast Asia spot LNG was at $14.15 per million British thermal units in the week ended May 5, the New York-based Energy Intelligence Group said on the website of its World Gas Intelligence publication. Prices earlier this year had more than doubled since the Fukushima accident of March 2011, as Japanese utilities rely on other fuel such as LNG to help replace lost nuclear power.

Oil Search is also moving ahead with drilling in Iraq’s Kurdistan region at its Taza oil project, which has attracted interest from potential partners, Botten said. The company expects to complete its evaluation of the size of that resource, in which it has a 60 percent holding, by the second half of next year, he said.

“There has been strong interest from a number of parties to potentially join us in Taza,” Botten said. “Our view is we would like to understand what the resource base is before looking potentially at crystallizing any further value.”

To contact the reporter on this story: James Paton in Sydney at jpaton4@bloomberg.net

To contact the editors responsible for this story: Jason Rogers at jrogers73@bloomberg.net

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